AS EVER-GROWING numbers of Chinese companies and individuals look overseas for investment opportunities, countries around the world are hoping to take advantage of the opportunities that this investment might bring. As such, when Wang Jianlin, China’s richest man, told the BBC in March of this year that the UK was the best place in the world in which to invest, it was something of a promotional success for the UK.
Certainly, British companies and the government have gone to significant efforts to develop rewarding ties with China. “The UK is investing a vast amount of resources into building commercial links with China, trying to capture the huge spending potential of Chinese consumers and businesses,” says Richard King, senior managing director North & Eastern China for Michael Page recruitment firm. As part of this, the past few years have seen a host of British politicians and business leaders travel to China, hoping to build business links by meeting their Chinese counterparts and offering their take on some of the key issues facing Sino-British relations.
One organisation well-placed to see the growing relationship between the UK and China is British Airways. “Business and economic cooperation between China and the UK has been going from strength to strength, and as economic and cultural links between the UK and China have strengthened over time, we have seen rapid growth in business and leisure travel demand,” says Richard Tams, British Airways’ executive vice president China. He adds that BA now operate up to 19 weekly services between mainland China and London, including daily flights from both Beijing and Shanghai as well as regular flights from Chengdu.
Creative and academic interests
The UK has also established a reputation in China for its creative sectors. With regard to the arts, British film, television and music are all comparatively well-known on the mainland, and certainly in first-tier cities. Leading British advertising agencies are also very well-represented, along with architecture, design and publishing firms. The creative sectors are certainly something the UK is now trying to emphasise during senior official visits to China, as noted by Lesley-Ann Wallace, principal of the British International School Shanghai, which from August will be called Nord Anglia International School Pudong. “Recent high-level visits to China by UK officials, and UK events such as the recent GREAT festival, showcasing UK artists and performers, and opened by Prince William, only strengthen the UK’s and China’s understanding of each other,” she says.
This greater understanding is being boosted by a number of different factors, a key one of which is education and the UK’s popularity as a destination for Chinese students. As King points out, “So many Chinese people go and study in the UK. Incidentally, a large portion of our own staff here did undergraduate or masters degrees, or some work experience, in the UK, and they mostly came back to China as Anglophiles.” He adds that “They feel good about the UK, and they have a better understanding of the country. As this generation grows into the business leaders of the future, I imagine the links between the two countries will only grow stronger.”
The numbers of Chinese students in the UK are staggering, and are continuing to rise. For the academic year 2013-2014, there were 87,895 Chinese students in UK higher education, according to the UK’s Higher Education Statistics Agency –an increase of 5 per cent on the previous year. On their return, these students can end up in all sorts of organisations. Neal Beatty, chairman of the British Chamber of Commerce in Shanghai, says that on a number of occasions he has met with government officials and Chinese business people who tell him about their experience of studying in the UK. “The quality of our education system in the UK is very appealing to Chinese students, officials and professionals alike,” he adds.
The reputation of the British education system is also reflected in the number of British international schools in China, and particularly in Shanghai. “The Chinese community is curious about the British education system – it is perhaps seen as less rigid and more contemporary than the Chinese system, while also providing a grounding that will give their children access to higher education in the UK and elsewhere,” says Wallace. She adds that while Nord Anglia education is not able to accept Chinese passport holders, they do have a small number of foreign-born Chinese students.
Another area where Britain’s educational strength has been shown in China is in collaborations between British universities and their Chinese counterparts. “Just over ten years ago, a sea change in Chinese policy ushered in a new era of foreign cooperation in higher education. Top Chinese universities were invited to develop new ‘Sino-foreign cooperative universities’ with partners from the West, and from this emerged Xi’an Jiaotong-Liverpool university,” says Leslie Gryce Sturino, director of university marketing and communication and professor of practice at the International Business School in Suzhou, one of the university’s institutions. Sturino adds that the university started with 164 local undergraduate students in 2006 and now has over 8,000.
One contributing factor to this growth has certainly been the UK’s reputation for education. “British education has a strong reputation among Chinese families and XJTLU emphasises ‘UK Quality in China’ – a message which is immediately and clearly understood by parents and prospective students,” says Sturino.
In addition to the importance of education for the Sino-British ties, Wallace notes that there is much more to the relationship than just one industry. “China and the UK have a long history of collaboration and partnership, both in the education sector but also way beyond this,” she says.
Some British companies have been doing business in China for a number of years, drawn by the numerous opportunities available. Since they have been here, their products or services have evolved in response to the changing Chinese economy. Geoff Mills, founder and managing director of SIP, a construction consulting firm, says that he initially founded his company in 1993 with a view to targeting foreign firms, but states that since then they have seen their client base evolve in line with China’s own development. “We started off building factories for foreign firms that were manufacturing goods here to export overseas,” he says. “Then, we were developing production facilities for firms that were selling into China’s domestic market, and now we have a successful retail and lifestyle business unit.” The next step, he says, is to use the “experience of working with the top Chinese contractors to expand our scope of services to support Chinese investment overseas.”
SIP is certainly not alone among British companies finding success in China’s construction sector. However, Mills is careful to draw the distinction between the contracting industry, which he says is mainly a local sector, and the consulting sector, where international firms are better represented. “The long-established British consulting engineers all have a significant China presence, offering skills and experience that have been developed on a global basis, and the large British architectural firms are also well-established in China,” he says. “This success in the consulting sector mirrors the international nature of the large accounting, law and management consulting firms,” adds Mills.
King makes a similar point about companies from the service sector doing well in China. “On the whole, I think service companies recognise that China is a huge opportunity. The biggest British accounting and law firms are here, as well as recruitment firms like ours and premium hotel groups,” he says. In addition, these companies have now expanded their perspective for having a presence in China. Once firms have built a relationship with Chinese companies on the mainland, they are in a good position to benefit from this working relationship if and when these Chinese firms expand internationally.
A financial rapport
Perhaps one of the most significant opportunities of Chinese companies’ international growth is the growing intimacy of China with Britain’s financial services industry. The latest instalment of HSBC’s “Rise of the Redback” series of reports that track the internationalisation of the renminbi (RMB), published this March, says that the pace of internationalisation is increasing. It adds that in 2014 there was an aggressive expansion of RMB centres, especially in Europe. The report further states that the focus for this year will be connecting these offshore centres, noting that “The presence of more offshore RMB centres in different geographies and time zones will increase global RMB liquidity, business opportunities and the degree of international acceptance, and as such, London is a critical part of a 24-hour offshore RMB business chain.”
London’s importance for the internationalisation of the RMB is a direct result of its position as arguably the world’s leading centre for financial services. As the HSBC report notes, London’s time zone advantage, its role as the world’s clearing centre, and the fact that it is the largest forex centre in the world have enabled it to hold the leading position for offshore RMB trading outside Hong Kong. Daily trading volume now stands at half of Hong Kong’s CNH (the designation of the RMB when traded outside China) volume, according to HSBC’s estimates.
London’s leading role in the internationalisation of the RMB is also making it easier for both British and global investors to invest directly into China. In March of this year, China Construction Bank International announced the setting up of a fund, listed on the London Stock Exchange, allowing investors exposure to the Chinese bond market – the first of its kind. Commenting on the launch, Xavier Rolet, CEO of the London Stock Exchange, said it was a landmark listing for London and an important sign of the market’s openness to new RMB product development.
However, the RMB also has a growing presence in the UK outside the banking and investment management boardrooms, and more and more British retailers are accepting payment by UnionPay cards. This certainly seems sensible from the perspective of retailers, since Chinese tourists spent GDP492m (USD729m) in Britain in 2013, and initial estimates for last year are expected to be higher still.
Certainly there is a great deal about the UK that can appeal to Chinese travellers. “While British Airways’ network and base in London provides Chinese travellers a gateway to many other European countries, we most definitely make use of the attractiveness of the UK in our marketing,” says Tams. He adds that “The UK is home to such a unique blend of incredible cultural heritage and modern innovations, as well as marvellous shopping and sight-seeing delights.”
It is occasionally said that some tourists may be put off from visiting the UK because it remains outside the Schengen Agreement, requiring visitors to the country to obtain an additional visa. Nonetheless, with visitor numbers continuing to rise, it seems the restrictions are not having a significant effect. “When I was last back home, I saw quite a number of Chinese tourists in Belfast, particularly visiting Titanic Belfast,” says Beatty.
Property and investments
Chinese individuals’ visits to the UK are not limited to tourist trips. According to Juwei, China’s largest overseas property online portal, the UK was the second-most popular market for Chinese property buyers in the world last year, only behind the United States.
Of course, Chinese investment in the UK is not limited to individuals. Chinese companies and institutions, both private and governmental, have invested significant amounts in the UK in recent years. In fact, between 2007 and 2014, the UK attracted nearly 10 per cent of the total funds of the China Investment Corporation, a sovereign wealth fund responsible for managing part of the People’s Republic of China’s foreign exchange reserves. These covered a range of different sectors, and included investments in airports, water, and primarily property and infrastructure, according to a report by UK law firm Pinsent Masons. Corporate investors have followed a similar trajectory, and have been particularly interested in real estate, with developers Dalian Wanda, Greenland and ADB all investing heavily both in London and elsewhere in the UK.
In the view of Pinsent Masons, this is just the beginning. At present, the UK receives approximately 3.7 per cent of Chinese outbound FDI, but the report says that it expects this to rise to 10 per cent by 2025 as China seeks to broaden its investment away from its past focus on natural resources. The UK is particularly attractive because of the potential, or even need, for further infrastructure developments, and due to the absence of significant investment in these sectors from within the country.
In addition, Chinese investors have a number of advantages they can offer – namely their capacity to bring finance to projects, and also their experience with vast infrastructure developments both within China and elsewhere in the world. The second phase of the UK’s high-speed train network, various projects within the UK’s telecommunications sector, and even the UK’s new generation of nuclear power plants are all areas in which Chinese investors are already expressing significant interest in bringing their expertise. Should the appropriate institutional and policy frameworks be put in place, then the potential impact could be strong for both the UK and China. Pinsent Masons estimate that investment into Britain’s infrastructure and real estate from China could reach an accumulated GDP105bn (USD155bn) by 2025.
Neal Beatty, Chairman of the British Chamber of Commerce in Shanghai shares his views on the situation for British companies operating in China.
What are some of the sectors in which British companies are well represented in China? Do their activities extend beyond the service sector?
Certainly, as you say, the service sector is important, and there are many British legal, accounting and consulting firms in China, but British companies in China are represented in a very broad range of industries. Among our membership, leisure and hospitality is strong, as is manufacturing and engineering. On top of those, of course education is very significant, with a number of British universities and international schools here, and also healthcare, both in terms of hospitals and the pharmaceutical companies.
Alongside some of the very large British companies in China, there are also a number of British SMEs. A few of these were established in China, but most are expanding from the UK, and, in a sign of China’s importance, a number of the British SMEs we see here are making their first major move outside Europe.
What do Chinese consumers think of when they think of British companies?
I think it varies between sectors, but creativity would certainly be one area where Britain has a strong reputation, particularly in terms of British film and music. People in China are very fond of many aspects of British culture, including our films, TV series such as Game of Thrones, our pop music and of course our Premier League football. The UK’s rich heritage, from our Royal Family and our historic sites, to William Shakespeare and our beautiful countryside are also very popular among Chinese people. As well as this, British companies have a reputation for producing high quality goods or services which has helped many of them to succeed in China.
What about the impact of Chinese companies going overseas on UK companies?
This trend is certainly bringing with it a number of opportunities for British companies. Particularly because of the UK’s strength in legal, finance and consulting industries for example, many UK companies have a status as trusted advisors, and so they are well placed to support Chinese companies in their expansion.
One thing we are also seeing is that where British companies have started to work with Chinese organisations in China, when that organisation goes overseas, the corresponding office of their British partner in China will pick up the relationship. This happens particularly in the UK, but by no means exclusively, and we are now seeing a lot of British companies doing business with Chinese companies, but in neither the UK nor China but in third countries.